I must start straight away with an apology for the break in communication since our last newsletter. Somehow, despite the weather telling us differently, it’s the middle of the year already. I hope this newsletter finds you well and you’re looking forward to (hopefully) warmer and sunnier times.
Previously, I had anticipated that this newsletter should explain the changes to pensions, tax and benefits which came into effect in the new tax year, but with the recent announcement of a summer election, this now seems less useful. If you believe the polls, a change in government (and therefore, fiscal policy) could be coming.
At this stage, it is a case of waiting to see which party triumphs on July 4th; however, in the meantime, some of our clients have been asking us about the potential effect of the election on their investments, so here are a few of our personal perspectives which we hope may help you at this time:
Markets like predictable elections rather than close calls
Overall, since the election was first announced, markets have remained stable, with the FTSE still at an all-time high and the pound unchanged against the US dollar. Labour are the heavy favourite for an outright majority. We know from history that markets like predictability and the calm market reaction are a result of a Labour victory being very much anticipated. The result has already been priced into markets, so at this stage, things remain fairly calm and steady.
Elections can cause short-term volatility but often have a minor impact in the long term
In addition, Shadow Chancellor Rachel Reeves has assured that there will be no additional tax rises beyond those already announced. This means stability in the rates of income tax, corporation tax, and capital gains tax.
A Labour government is predicted to be ‘more of the same’ when it comes to fiscal policy. All being well, this should lead to a fairly benign budget outcome and smooth sailing for UK equity and bond markets.
Ultimately, markets are driven by much more than domestic politics
As with any election, we would expect some signs of volatility in the days leading up to 4th July, but factors outside the British government play a more influential role in the performance of UK stocks. This is one of the reasons underpinning our global investment approach, as selecting global-facing funds within a diverse portfolio suitably limits the impacts of geopolitics and exposure to risk on longer-term performance.
It is fair to assume that there will be heightened market noise over the next month and an outcome beyond what the market is expecting will cause some uncertainty, particularly in bond markets. Our clients can, however, take comfort in the short-, medium- and longer-term impacts of the election to the performance of their portfolios as likely being very limited.
What should investors do to prepare their portfolios for the election?
In short, and at this stage, nothing. We are pleased to note that for our clients who avail of our ongoing management service, we have already reviewed the assets, level of diversification and risk within your portfolio and remain happy that these contain the right degree of flexibility to cope with any market changes, not just limited to this election as a single event. As the year continues to unfold (US election, ongoing war in Ukraine and Gaza, and interest rate cuts now in doubt), this approach means that whatever happens, your investments are already positioned to weather any volatility.
As always, your ongoing care is paramount to us, and the points above highlight why we do what we do – because good financial planning means that whatever happens, you’re ready for it. Having built on your financial foundations over the years through our ongoing expert care, you’re still in the very best hands.
IW team update
Aside from this, and just on a personal note, I wanted to share that Jennifer Davy will be leaving us at the end of this month. Some of you will know Jen very well as we have worked together for 18 years and her passion for Independent Women, and client care, remains as strong today as it was back then – however she has decided to venture into pastures and I am sure, like me, you will miss her very much. Best of luck, Jen!
If you have any questions about your investments or financial planning at any time, please don’t hesitate to contact us any time. I am always pleased to answer any questions you may have.
In the meantime, wishing you a lovely summer break when it comes (summer, if not the break!)
Warm wishes,
Lesley
